BSkyB to buy Alan Sugar's Amstrad for 125 million pounds

(This updates an item published at 0641 GMT adding analyst comment, further detail.)

By Jessica Hodgson

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--British Sky Broadcasting Group PLC
BSY, -6.25%
the U.K.'s dominant pay television provider, Tuesday said unexpectedly it had agreed to buy computer and electronic hardware manufacturer Amstrad PLC (AMT.LN) for GBP125 million in cash.

The broadcaster, in which News Corp. (NWS) is a 39.1% stockholder, said the acquisition would help boost its product development capacity, and said it should be accretive to earnings in the 2008 fiscal year.

BSkyB said its offer, which values Amstrad at 150 pence per share, had received irrevocable undertakings in respect of the offer from the directors of Amstrad including Amshold Ltd., controlled by founder Sir Alan Sugar, who owns around 27.9% of the issued share capital. BSkyB said it separately had irrevocable undertakings from 44.8% of the company's other shareholders.

The offer represents a premium of approximately 23.7% to the closing price of 121.25 pence for each Amstrad share on 30 July 2007, the last business day prior to the date of this announcement, BSkyB said.

BSkyB said that Amstrad, which provides roughly 30% of the set-top boxes the company provides to its customers, would give it an "in house design and development" capability that would allow it to make significant cost savings. BSkyB said it estimated that around 75% of Amstrad's revenues came from the set-top boxes it provides to BSkyB. BSkyB has previously paid Amstrad fees for product development.

At 0703 GMT shares in BSkyB were trading down 2 pence, or 0.4% at 663 pence in a higher broader London market.

Cazenove said in early research Tuesday the deal was "a small but sensible and probably one-off deal that has both solid strategic value whilst also being earnings enhancing from day one." Cazenove rates BSkyB buy.

Another analyst, speaking on condition of anonymity, said Tuesday the acquisition would allow BSkyB to "capture the margin" that it would previously have paid to Amstrad for product development, driving cost efficiencies.

Two other hardware manufacturers, Pace Micro Technology PLC (PIC.LN) and Thomson (18453.FR) also supply BSkyB with products and technology. A person familiar with the matter said BSkyB would continue to work with these suppliers.

But the same analyst pointed out that the deal with Amstrad should allow BSkyB to secure more favorable terms from its other suppliers after the Amstrad acquisition.

Amstrad has provided digital satellite receiver equipment to BSkyB since the company launched as a satellite broadcaster in the late 1980s, and has more recently provided hardware and development technology for its video recording devices under the Sky + name.

BSkyB last year introduced high speed Internet products in a bid to diversify beyond its core pay television offering to counter competitive threats from telecoms operators such as BT PLC
BT, -1.11%
moving into the television market and the growth of the free to air digital service, Freeview.

"Sky and Amstrad have had a long and positive relationship," BSkyB's Chief Executive James Murdoch said in a press statement. "The acquisition accelerates supply chain improvement and will help us to drive innovation and efficiency for the benefit of our customers."

Amstrad was one of the companies to pioneer the home computer boom of the 1980s in the U.K., introducing millions of consumers to personal computers for the first time. The company now focuses primarily on digital devices such as set-top boxes and email telephone devices. Other key Amstrad customers include Sky Italia, a wholly-owned subsidiary of News Corp.

Amstrad Chairman Alan Sugar has recently become a television celebrity in the U.K. after presenting the hit television program The Apprentice, which sees hopefuls competing to win a job with one of his companies.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.